Before the era of modern business, it was common to have companies to offer a full range of business activities. For example, a set of neighbors might have shared workshop space. Within that workshop, there might have been a mechanic, furniture maker, retailer and general repairman all in one company.
The joint tenants shared the space and their costs, and all took a share of the profits for the work they undertook. However, with the advent of the modern corporation, there was a trend that completely changed this way of doing business.
The trend was called division of labor. Basically, this meant that each person specialized solely in the thing they were best at, and did not share costs or engage in any other activities. It was shown that effective division of labor provided the best results for each party.
Now, corporations do one thing and attempt to dominate their market by doing it. McDonalds aims to capture a majority of the fast food market, while Apple attempts the same feat with consumer electronics.
That is why it is rare to find a business that splits its focus in the way that Tessera Technologies (TSRA) does. But the decision to focus on two segments has delivered strong share prices returns to attract the interest of options trading advisory services and Wall Street firms alike.
The share price has climbed strongly from a year ago at levels around $20, to recent highs well above $36. So has the recent uptrend made Tessera a good stock for options trading newsletters to be aware of?
Understanding The Business
Tessera Technologies (TSRA) is a unique business that operates simultaneously in two divisions that are not strongly related to one another. The first division is the intellectual property division. This segment of Tessera is a specialist in the semiconductor industry.
Semiconductors are the hardware that helps the modern world work, with computers, communications tools and circuit boards using them interact with their users. The company is focused on packaging technologies, which bridge the gap between the basic chips and the more complex system by connecting them through integrated printed circuit boards.
The company then licenses this basic technology to other companies who are able to build upon it for their own specific purposes. To take another example, it is like a manufacturing company who makes bricks, which then sells them on to builders who can use the raw “building blocks” to create their own designs.
The second business segment is the headline grabbing one, named DigitalOptics. DigitialOptics is the division that provides software solutions to business in a cutting edge field. This field is the area of mobile imaging, which includes things like facial recognition, expression tracking, blink detection and photo imaging. This segment also offers photo editing and mapping software that allows for professionally retouched photos to be taken and edited without the need for a full suite of expensive software and editing tools.
The company has been in operation since the early 90’s and has operations across the Asian region, as well as some limited activities in Europe.
Metrics and Measures
This unique dual focus strategy that has caused Tessera to be the source of some confusion for most options trading advisory services has nonetheless delivered good results, as shown in the most recent quarterly release.
The company guided the market to a quarterly revenue figure of between $92 and $94 million, with the actual figure coming in at the midpoint of $93.3 million. The company earns a great deal of revenue from the widely fluctuating episodic revenue, which makes forecasting difficult, but the result of $46 million was a good one.
More importantly for the company, the proportion of earnings that came from more stable recurring sources almost doubled, from $19.6 million to $47.3 million for the quarter.
A heavy drag on the company results was a large bill relating to legal proceedings in the court system against a rival, and a higher than previously recorded research and development investment expense.
The Investment Case
Up until very recently, the investment case for Tessera (TSRA) has been very clouded due to a large court battle with Amkor. The dispute is related to the advanced packaging division in the semiconductor arm.
This legal dispute prevented options trading newsletters from being able to confidently issue a recommendation on the stock. However, very recently, the company announced to the market that all legal disputes had been settled in favor of Tessera. The company was able to reach a settlement where Tessera would be paid a total of $155 million, in quarterly installments. The impact of this result was so significant that the company was able to raise its recurring revenue guidance to $235 million from an initial figure of $195 million.
This means that Tessera’s competitive position in the market is well established, and that competitors will think twice about offering a solution that is similar to theirs because of the risk of large scale legal damage that they might have to pay.
In addition, it removes a distracting ongoing event for Tessera and allows management and employees to return to the business of growing the company, rather than fighting in court.
Finally, the growth engines of the company are positioned strongly in favor of the increasing level of technology in our day to day lives, with facial recognition and semiconductor circuits having applications for robotics, advertising and smart devices alike.
Tessera Technologies (TSRA) is a company operating a unique dual division strategy that is delivering strong financial results. With the removal of a legal dispute on favorable terms, they are well placed to grow their market position in the near future, with products that should serve the smart technologies of the future. To stay on top of rapid developments like the settlement of legal issues that happened to Tessera this week, it helps to have the help of a professional and successful options trading newsletter.